Much is said and circulated on the internet about taxes during election season. How high is too high? Who pays a fair share and who doesn’t? I’m going to lay out some facts for consideration and then make a few suggestions. Some of the facts will be hard to believe so I supplied internet links. Please, if you don’t find my statements credible, check it out for yourself.
I’m counting all taxation regardless of which level of government collects it or how it is collected. As Americans our total tax bill is low compared to other developed nations. Among 33 developed nations studied by the OECD (Organization for Economic Cooperation and Development) our taxes as a percent of our GDP ranked 30th. Mexico, Chile and Turkey were lower. We collected 27.3% of GDP in all forms of taxes. The median among developed countries was 36.2%. http://www.taxpolicycenter.org/briefing-book/background/numbers/international.cfm
Practically everyone in the US pays taxes and the total tax burden is very close to flat regardless of income. The top 20% of the population had 60% of the income and paid 63% of the taxes. The middle 20% of the population had 11% of the income and paid 10% of the taxes. The bottom 20% had 3% of the income and paid 2% of the taxes. The top 1% of the population had 21% of the income and paid 22% of total taxes. http://www.ctj.org/pdf/taxday2012.pdf
Despite propaganda, the poor do pay taxes and we are not overtaxing the wealthy. We do however; have some monumental problems to address. We are spending far more than we are collecting and if we keep on doing that, our debt will consume us. The truth is that we need to cut spending AND raise taxes. The Simpson-Bowles Commission Report made that clear as has every other credible study of our situation.
For three decades, the incomes of the wealthy have grown much faster than incomes of the middle class and poor. Since the 1950s the top income tax rates have been cut by more than half and the rate for capital gains (investment income) is now less than one third of the top rate for wages. It does not seem right that those who work have higher income tax rates than those who invest; but that is the case. There was indeed a time when those with high incomes paid a higher share of it in total taxes but that time has passed. Today most of us pay about the same percentage of our incomes for all governmental operations; but the incomes of the wealthy have risen while the incomes of the middle class and the poor have stagnated. http://www.census.gov/hhes/www/income/data/historical/inequality/IE-1.pdf
Today we have a growing deficit and we have some elected officials who tell us that Medicare and Social Security must be cut to balance the budget. This same crowd wants to drastically cut food stamps and Medicaid too. They would have you believe that Medicaid goes to slackers but about two thirds of Medicaid payments go to nursing homes for care of disabled and elderly. Much of the rest goes to children. http://www.cbpp.org/cms/index.cfm?fa=view&id=2223 43 percent of Food Stamp recipients live at or below half the poverty line. Only 15 percent live above the poverty line. Children under 18 account for 47 percent of all food stamp recipients. Eight percent are seniors. Forty-one percent of beneficiaries live in households with partially or fully employed workers. Their numbers sometimes include enlisted military families, paramedics, and other public servants whose pay is below the poverty line. The share of Food Stamp recipients that also receives welfare benefits is at historic lows; in 2010 it was less than 10 percent. http://www.theatlantic.com/health/archive/2012/09/who-benefits-from-food-stamps/261993/
We can help pay for vital programs by eliminating some tax loopholes. One has to do with capital gains. A person who puts aside some income in a savings account or by purchasing stock has already paid income tax on the saved money and then will have taxable income from interest, dividends, or the increase in value of the stock. The person of modest means is likely to use a savings account and his interest income will be taxed just like his earned wages. The person of greater means can purchase stock, real estate or other investments and the increase in value of the investments will be taxed at not more than the15% capital gains rate. Fairness demands that the wages of those who work should not be taxed at a rate higher than the rate for capital gains. We should tax capital gains at the same rate as wages.
The laudable purpose of the home mortgage deduction is to make home ownership possible. So let’s limit it to a maximum mortgage of about $300,000 and also cap the lifetime amount of tax deduction for any individual. That way it won’t be used for subsidizing the purchase of second and third homes or extremely expensive homes.
We can eliminate the law which grants fabulously profitable oil companies a lower tax rate than other businesses. We could add a very low (maybe one half of one percent) sales tax on all forms of securities. A contractor pays a sales tax when he buys tools to earn money. Why should a bank or investor not pay a sales tax on their tools, like credit default swaps? Other countries have done it. The result seems to be less speculation and more investment; less volatility from computerized trading, and substantial tax revenue. http://www.imf.org/external/pubs/ft/wp/2011/wp1154.pdf
Candidate Romney wants to reduce taxes for the wealthy even more. That will require drastic cuts to programs or huge additional borrowing. I don’t enjoy proposing higher taxes and I would enjoy paying them even less, but it seems clear that increased revenue should be part of the solution. And it would be easier to stomach cuts to human services when everyone pays a fair share.